My government took office nearly 18 months ago. The Indian economy faced serious challenges. A high fiscal deficit, a high current account deficit, a large number of stalled infrastructure projects and persistent inflation were among them.
It was obvious that reforms were needed. We asked ourselves the question, reforms for what? What is the aim of reform? Is it just to increase the measured rate of GDP growth? Or is it to bring about a transformation in society? My answer is clear: we must reform to transform.
In short, reform is not an end in itself. Reform for me is just a station on the long journey to the destination. The destination is the transformation of India. We have to take the fruits of development to the margins of our geography and to the bottom of our demography. We have to touch lives, while reaching for the sky.
By almost every major economic indicator, India is doing better than when we took office 18 months ago. GDP growth is up and inflation is down; Foreign investment is up and the current account deficit is down; Tax revenues are up and interest rates are down; The fiscal deficit is down and the rupee is stable.
Obviously, this did not happen by accident. And the world economy is not exactly doing well. This success is the result of a series of concerted policies. We have embarked on a course of fiscal consolidation. We have entered, for the first time, into a monetary framework agreement with the Reserve Bank (of India) to curb inflation.
Even while cutting the fiscal deficit, we have substantially increased productive public investment. This has been made possible in two ways. Firstly, we have imposed carbon taxes on fossil fuels. We have taken the bold step of decontrolling diesel prices and thereby eliminated energy subsidies and have in fact imposed taxes on fossil fuels. We have increased the cess on coal by 300 per cent. Globally, there is much talk of carbon taxes. We have actually acted. Secondly, we have reduced wasteful expenditure through innovative methods, including targeting subsidies to the deserving through technology.
Overall, there is increased confidence within and outside the country. The International Monetary Fund and the World Bank have expressed even better hope for our economy this year and after. The Economist magazine this week stated that "India is in healthier shape than any other big emerging economy".
However, as I said, our aim is not mere reform, but "reform to transform". These include structural and institutional reforms. Agriculture remains India's mainstay in terms of providing livelihood. We have introduced a series of simple but powerful structural reforms. There was a tendency to divert subsidised fertiliser for the production of chemicals. We have found a simple but effective solution: by neem-coating the fertiliser, it becomes unsuitable for diversion. We are now moving towards universal neem-coating. This has already saved billions of rupees of diverted farm subsidies.
We have launched a housing for all programme, one of the most ambitious in the world. We have undertaken major improvements in the transport sector. Our major ports witnessed a 4.65 per cent growth in traffic and an 11.2 per cent increase in operating income, in 2014-15 despite a global contraction in trade volume.
The pace of award of new highway works has increased from 9 km/day in 2013-14 to 23 km/day currently. These will have large multiplier effects throughout the economy.
We were committed to restore credibility in the process of allocation of natural resources. We started the Jan-Dhan Yojana. In less than a year, we opened 190 million new bank accounts. On the social security front, we have launched innovative and attractive schemes for insurance and pension. We have also set up MUDRA Bank to fund small traders, who were unfunded so far. More than six million small traders have already availed of the loans.
While expanding banking services, we are also taking steps to strengthen the banking system. Credible and capable bankers have been appointed to head banks. For the first time since banks were nationalised 46 years ago, private sector professionals have been appointed to key positions. We have taken concerted action to revive stalled infrastructure projects. We have started a major revamp of the power sector. These measures will also benefit our banks.
As a result of our initiatives, the sentiments for private investment and inflow of foreign investment have turned positive. Foreign investment is up 40 per cent. India has been consistently ranked as the most attractive investment destination by several global agencies and institutions. India has also improved its UNCTAD ranking of investment attractiveness. Against 15th so far, now we are at 9th place. India has also jumped 16 places on the World Economic Forum's global competitive index after five years of decline in the list. MOODY'S has upgraded its outlook for India.
We are aware of the interest of the global investor community in the potential that India has. In recent months, this interest has gone up. Therefore, to revitalise the flow of investments, we have launched the second wave of structural and financial reforms. We are trying to further open up the economy and introduce an element of predictability and stability in taxation system.
To give you some examples: We have allowed and enhanced FDI levels in key sectors including insurance, defence and railways. Now, most of these FDI sectors have been put on automatic approval route. We have also rationalised FDI policies in many sectors, including construction, plantation and medical devices. We have now allowed composite caps for foreign portfolio investors in all sectors where FDI is allowed. Earlier, portfolio investments had a separate cap. We have greatly liberalised the licensing regime; to give you one example - we have taken almost 60 per cent of defence items out of the licensing process. We have ended retrospective taxation. We have notified the regulations for the Alternative Investment Funds. We have rationalised capital gains tax for real estate investment trusts. We have also decided to defer the implementation of General Anti Avoidance Rules. We have introduced the Goods and Services Tax Bill in Parliament. We are hopeful of rolling it out in 2016. This will create a unified system of taxation across the country. We have drafted a new bankruptcy code. Formation of the Company Law Tribunal to expedite cases is on the way.
Going further, I want to assure you that India is committed to protect intellectual property rights (IPR) of all innovators. We have taken several initiatives for transparency and online processing in IPR administration. A comprehensive National IPR policy is expected by the end of the year. We are moving fast to make sure that our tax regime is transparent and predictable. We are also keen to see that genuine investors and honest taxpayers get quick and fair decisions on tax matters.
Edited excerpts from Prime Minister Narendra Modi's Address at Asean Business and Investment Summit, Malaysia, November 21, 2015
Disclaimer: These are personal views of the writer. They do not necessarily reflect the opinion of www.business-standard.com or the Business Standard newspaper
